How Auto Equity Works
Auto equity promoters usually target consumers who have leased
or financed an auto and can no longer afford to continue making monthly
payments. These consumers are reluctant to terminate their finance
agreement because of the large termination penalty. Promoters attract
these consumers with the promise of finding someone to "take the car
off of their hands." Through advertisement, promoters find another
consumer (subcontractee) willing to take over the lease or finance
payments in exchange for the automobile. The subcontractee often is
attracted to the deal because poor credit prevents them from leasing or
financing a car of their own. The promoters charge a substantial fee to
the subcontractee for finding the automobile. Most arrangements of this
type are prohibited by auto-financing or auto-leasing contracts.
Promoters attempt to have these arrangements kept secret by having the
subcontractee make the payments to the original contract holder. The
contract owner then makes the payment directly to the leasing or
financing institution.
Initially, the auto equity promotion arrangements seem to solve the
problems of both the person that does not have a credit rating high
enough to finance an auto, and the person that is in danger of damaging
their credit rating by failing to keep up with their monthly finance
payments. Unfortunately, many of these agreements do not result in
happy endings.
Auto Equity Promotion Problems
While this promotion arrangement may seem attractive to many consumers, a variety of legal problems may arise.
Auto equity promotion arrangements may lead to repossession of the
automobile since they are in violation of most financing or leasing
contracts. In the case of repossession:
- The original contract holder may suffer damaged credit and may be
liable for any penalties imposed by the Attorney General and the early
termination penalty from the lending or leasing institution.
- The subcontractee may lose all claims to the automobile,
fees paid to the promoter, and as well as monthly payments made to the
original contract holder.
If the subcontractee stops making payments to the original owner,
the original owner is still responsible to make payments on an
automobile that is no longer in their possession.
If the subcontractee has an accident without adequate insurance, the
original contract holder is left with legal liability to cover the
damages. Parking tickets are also the responsibility of the original
contract holder.
In the case of financed cars, the original consumer runs the risk of
being criminally prosecuted under New York State Penal Law by disposing
of a vehicle through an auto equity agreement.
Legislation
In January 1997, New York State amended the General Business Law.
It is now illegal to deal in auto equity promotions. Violators of this
law can now be fined up to $1000. New York follows 10 other states
(Arizona, California, Colorado, Florida, Georgia, Illinois, Missouri,
Texas, Virginia, and Washington) in passing laws to specifically
prohibit the activities of auto equity promoters.
What to do
If you are having trouble maintaining regular automobile
payments, check with your lending institution, or leasing company.
Often if you explain your circumstances some arrangement can be worked
out.
If you run across advertisements for auto equity promoters, report
it to the Office of the Attorney General. Consumers can also file
complaints against auto equity promoters with:
New York State Office of the Attorney General
Bureau of Consumer Frauds and Protection
120 Broadway
New York, New York 10271
(212) 416-8345
Consumers can also file a complaint
with the Better Business Bureau. The Better Business Bureau Serving
Metropolitan New York can be reached in four ways. For immediate
assistance, call 212-533-6200. The charge is $3.80 plus applicable tax,
charged to a major credit card. Consumers can also call 1-900-255-5222.
The charge is $3.80 for the first 4 minutes and 95 cents per minute
thereafter. The average call costs $3.80; the maximum charge is $3.80.
The maximum charge is $9.50. For free information or to file a
complaint, write to 257 Park Avenue South, New York, NY 10010-7384 or
check our site on the World Wide Web.